Posted
by
samzenpus
on Sunday March 27, 2011 @10:14AM
from the do-no-evil dept.

theodp writes "If Vivek Wadhwa remade Pinocchio, instead of The Coachman luring naughty boys to Pleasure Island to engage in mischievous behavior and be transformed into donkeys, you might find Goldman Sachs CEO Lloyd C. Blankfein luring bright engineering grads to Wall Street to engage in mischievous behavior and be transformed into, well, asses. While the practice of poaching engineering talent slowed after the economy tanked in 2008, Wadhwa is dismayed to report that thanks to hundred-billion-dollar taxpayer bailouts, investment banks have recovered and gone back to their old, greedy ways, snagging engineering grads who might otherwise solve the world's problems, making them financial offers they can't refuse, and morphing them into quants, investment bankers and management consultants. 'Not only are the investment banks siphoning off hundreds of billions of dollars from our economy with financial gimmicks like CDOs,' writes Wadhwa, 'they are using our best engineering graduates [25% of MIT grads in '06] to help them do it. This is the talent that our country has invested so much resource in producing.' He concludes: 'Let's save the world by keeping our engineers out of finance. We need them to, instead, develop new types of medical devices, renewable energy sources, and ways for sustaining the environment and purifying water, and to start companies that help America keep its innovative edge.' Amen, but how 'ya gonna keep 'em down on the Engineering farm after they've seen Wall Street?"

While investment banks and the like do make important contributions, their industry just recently had a negative effect on the WORLD economy due to their shady practices. Then when it hit the fan, they used their influence to socialize the risk/losses while still keeping the profits. So the taxpayers lose, and they still win, even when it was their poor decisions that caused the mess.

Some would say that because of the above, any benefit they provide comes at too steep a cost. I certainly understand that not all participants in the finance industry should be painted with this same brush. But none of this has to do with "communistic ideals". And you don't have to find money distasteful to find it distasteful when taxpayers are footing the bill for the mistakes of others.

I'm not saying that I agree with the article (I haven't read it yet). But I would hope that it is not that hard to understand why the finance industry is not very popular...when you put everyone on the planet at risk, that is the kind of blowback you can expect.

Investment banking is less and less about investment which is good for the economy, and more and more about arbitrage and pumping transactions to make a fee, which siphons capitol off from actual investments.

Investment banking is less and less about investment which is good for the economy, and more and more about arbitrage and pumping transactions to make a fee,...

So when was it different? There have been many explanations that a great part of the recent worldwide financial disaster wasn't because the finance industry wanted to commit the shady deals that caused it all; it was because the government's financial regulators (and the judicial system) has for several decades been looking the other way. This gave the financial industry permission to do the things that they've wanted to do, but knew they couldn't get away with.

In a sane world, the people who committed the shady financial deals would have been prosecuted and jailed. This has happened to a few, true, but very few. Most have been rewarded, including at taxpayer expense.

The saying "Bad money drives out good" is rather old, and should be recalled at times like this. As long as the crooks in the finance industry know they can get away with it, they will.

See particularly the mention of commercial real estate, which was never within the scope of the act. I guess all those sources that basically conclude that you, Ron Paul and all your ilk are full of shit are all part of some [insert bogeyman here] conspiracy.

Yes, there is a very long line of individuals responsible for what happened. We are of all ages, shapes and colors. But what cannot be argued, is that bankers are at the very front of this line followed closely by lobbyists and politicians.

There were government programs that encouraged (or at least tolerated) that kind of abuse, but they were not financial regulations; they were social engineering projects similar to "the projects" of yesteryear, but with a much more innocuous face, largely promoted by "compassionate conservatives" (which is why the Bush administration was able to make claims that minority home ownership peaked during their tenure: poor people were being funneled into predatory mortgages while the other services they depended on were being cut). This was in no way financial regulation, it was manipulation of the market by way of interest rates, coupled with a distinct *lack* of regulation.

Look, it's ok. You feel guilty of having sold out, but really, it's alright: we are all free. There is nothing reprehensible in deciding that you need money to support your family/loves/drug habits (bar useless mentions).

However.

Money for research overwhelmingly comes from government and industries. Not the financial sector. And the point of research is that all of Humanity benefits: ideas created/crafted/refined there benefit all. Only in theory is the investment baking industry responsible for better investment. Because as it happens, they are way too much into short-term (crazy short) benefits for that. And they sustain themselves through fees, meaning that they have a strong incentive for the creation of opaque products no-one really knows how to price (but the fees are charged anyway:) ).

If Nash had been a quant, a couple billions would have been added to the bottom line of some Wall Street firm, and the Nash equilibrium would have been called the Smith (or Jones) equilibrium. And been invented later. And game theory would have lost a couple decades. And the whole of Humanity would be a couple decades back in that respect.

This is precisely why it is particularly bad that the financial industry hires the brightest: if they were into banking for the love of it, chances are, they would be indeed be interested in better investment strategies. But most of them hate their jobs, and compensate by loving their lifestyles and trying to be extra-clever for the sake of their egos. Thus the mess we are in.

Did you know? Monetary incentives prevent people from lateral thinking and seeing the big picture. Doesn't it explain a lot?

Wow that sucks to watch, maybe they could have just typed it up and saved us all 10 minutes of our lives?

What is with people turning something that can be read in 30 seconds into an animation that takes 20 times as much to view? That's like the video blogs that sometimes get linked in a slashdot article. Just give us the text so we can view it and get on with our lives...

I know scientific research _is_ a grind. You do it for the rare moments where you have a brilliant breakthrough. But then, though I program, I am not the whipping boy:)

Again, the issue is that the level of compensation in banking is disproportionate to the value created (but then, it is the other fields which underpay, not the reverse). Which is bad because:- it does not cause better outcomes in banking- causes worse outcomes in the rest of the economy.

Of course, if we were to discover that the paying scale in the rest of the economy was imposed by the (banker) investors, then you would be the first against the wall the week after. But clearly, you would not advise another human to try and impose the equivalent of indentured servitude to his employees to improve the bottom line. Especially since you believe that paying well attracts the best employees.

Actually the worse thing about scientific research in a university setting (talking as an actual physicist here) is that you work for 15 years (grad school plus post-docs) at low wages just to find out you didn't win the tenure-track lottery. It's too bad, so sad and then you're flushed out of the system. Now you're in your mid-thirties with no job and no real world job experience.

Then professors wonder why grad students would go off to be quants after their PhD instead of pursuing *non-existent* faculty positions in some sort of fatalistic death march. The funny thing is the lack of permanent positions in physics is not a new thing. It has been like this since the 1970s. Yet the numbers of physics PhDs that universities churn out keeps going up. Heck, for theorists there often isn't any options other than finance, insurance, and consulting.

I guess it is the same for engineers now too going from the article. One positive, I guess, is that this makes it easier for physicists to beg a prospective employer to give them that job that should have been filled by some EE.;)

Defencive. Some of us write with the proper British spelling. And if the revolution comes, bankers will be the first against the wall; I won't be doing the shooting, though. They cause unbalance in the economy (and wreaked it in recent memory), but particular punishments should not be dished out for collective hubris.

You're describing the financial sector as it existed in the 70s. Back then, it really was about helping businesses grow and finding the next big idea. These days, the pigs on top have discovered that they can get WAY more money by playing around with "creative" instruments. Like bundle a bunch of bad loans, sell them claiming their good loans, and then bet money that they'll fail. Or buy a healthy company, make them layoff of a bunch of their workers so that their stock price jumps, and then sell. Shit like that doesn't create wealth; it just steals it.

That's a wonderful story about the financial sector and its service to academia, and most of it is actually true.

It's also a story that conveniently omits the essentially fact that the finance industry is as crooked as a Nigerian oil committee, and that most of their research funding has a hugely corrupting influence on academia, on economics in particular.

In short, most of your arguments could be equally well applied if the funding was coming from Colombian drug lords, the mafia, the Chinese government, or Colonel Gadaffi. In some cases they have. Strangely though, most would be unwilling to extend the same level of credence to the latter group as they would to financeers.

And so we come to the essential paradox of our age. Despite the proven record of corruption by bankers and CEOs, despite the massive damage and hardship they have caused, and despite mass public embitterment towards them, somehow collectively, our society still trusts these people with custodianship of our collective wealth, power, and future. What is wrong with us?

Problem is that lately, they have been focusing on creating money out of thin air. And in addition to that, by means of HFT cheating people out of their money using an automated tool. How HFT isn't considered fraud, is beyond me... The fraudster on the corner with 3 cups and a ball is just a less tech version of HFT algorithms.

This was true when the financial system was focused on directly investing in real businesses and better financial systems meant a better and less costly allocation of capital to those who could use it.

Increasingly however, the talent is being wasted on what are at best zero sum games against other similar players, such as high frequency trading. At worst these activities are actually harmful, and parasitical, on those that benefit the wider economy by profiting traders at the cost of investors (OK those groups are not well defined, you we both know what I mean well enough).

There is also the problem that even on the most optimistic "markets are always right" take on this, there is too much investment in the financial activity because the socialised risk together with privatised profit means that the level of investment no longer reflects the level of risk/

I'm an academic research mathematician who'll soon be leaving his postdoc to look for work in the financial sector.. or any other interesting sector. I've had a lovely time doing postdocs in interesting new cities, but I'm done with the moving, long distance relationships, etc. I love programming too since like age 7, so anything goes. I promised myself however that I'd try several interesting things before taking any job that required a security clearance, i.e. NSA.

Inside academia, there are literally hordes of well qualified PhDs who'll never ever get proper research jobs simply because the number of good secure research positions grows slower than the national population while every such position produces numerous qualified people (ignore the hordes of under-qualified people graduated by some faculty). We understand this population model when we call the variable rabbits, yet we ignore it when we say academics.

Academia and industry may be losing many of the best-of-the-best to Wall St. but we've more than enough qualified people for all the high level jobs. If society wants more people in a particular field, then society must allocate the resources. You could for example quadruple the NSF's budget by shaving off just over %2 of the $900 billion military budget [wallstats.com].

Don't like how Wall St. extracts so much money from the venture capital and IPO process? Fine, allocate $10--$50 billion for federally backed public interest venture capital operations, hell back it from social security, surely better than 3%. There will be no shortage of young engineers choosing $60k per year working on their own ventures over whatever salaries Wall St. offers. Just don't complain about people not doing socially useful work in saturated job markets, especially ones so supersaturated that all the young people end up in long distance relationships.

p.s. If we actually invested like $20 billion of social security receipts towards, then we'd see employers complain even more about a lack of qualified people, meaning people who'll do highly skilled work for little money.

Because all the research and cleverness they're doing in the field of Investment Banking isn't about giving loans to research organizations, but about finding clever loopholes that let the banks turn large numbers into even larger numbers in some impenetrable perversion of economics.

Not all the research in the field of investment banking goes into loopholes and dodgy practices. Yes, there have been a few notable examples of such lately but there's still a ton that goes toward real investment that helps industry and our nation.

I'm all for hunting and knocking down the members of the finance industry who create a toxic environment for research and innovation but it's hardly fair to broad-brush the entire industry. It doesn't get into the news (another field which has its fair share of to

In fact it is. Do we want our "best engineering graduates" out of financial banks? Easy: pay them more than the banks.

Oh, but we don't want to do that!

That is the real issue - companies want the "best engineering graduates" on the cheap. Guess what - some are motivated by money, and go where it is. You want them, pay the market rate. The market rate, BTW, is not what other companies in your industry pay but what the grad can get at any company.

We should remember then it's a free market economy: you don't want "them" to tell you how do you have to live your life, then you can't tell "them" how should they have to live theirs.

Right now has been known that Moody's CEO has rised his salary this year almost 70%, well over 9 millions a year. And we allow for that. *That's* the problem.

If you believe in the first paragraph you no doubt see the irony in the second.

The market rate, BTW, is not what other companies in your industry pay but what the grad can get at any company.

+5 insightful

During my stint at HP (in the Fiorina/Hurd years), they kept cutting wages, bonuses, incentives etc to be "in line with industry averages". Which no doubt helps explain why HP is no longer the above average company they used to be.

In fact it is. Do we want our "best engineering graduates" out of financial banks? Easy: pay them more than the banks.Oh, but we don't want to do that! We should remember then it's a free market economy: you don't want "them" to tell you how do you have to live your life, then you can't tell "them" how should they have to live theirs.

Except that the free market economy is supposed to allocate resources efficiently, and it clearly isn't. Currently the best and brightest engineering students are being employed to come up with cleverer and cleverer ways for the financial services industry to siphon more money out of the economy, when they'd be more usefully employed doing things that actually grew the economy by creating new inventions and more efficient ways of doing things. That's just bad for everyone in the long run.

Or make jobs doing research in academia actually feasible. I'm getting turned off (in grad school right now) at a future in academia because of the fact that I have to claw and scratch and fight for grants and funding. It is so fucking stupid that we it hard just to *do* important research jobs, without even taking into account the challenges of actually doing the research itself. No wonder professors never talk about jobs in industry (research, I'm not in a field that could turn me into a quant), many w

True or not, defending an industry which is widely perceived as being responsible for wholesale global economic collapse and that industry then having to go cap-in-hand to the taxpayer in many countries worldwide lest the problem get even worse (and getting away with it, largely because the average taxpayer cannot afford to see his bank go out of business) is really not going to win friends and influence people.

People gave their money to investment companies and then turned a blind eye to how that money was used in either a show of greed or ignorance. We can't affix the blame to just the investment bankers, we gave them the power by giving them the money and the free reign to do what they wanted with it.

But hey, if I was a karma whore I would just post exactly what the average slashdot libertarian wants to hear rather than openly discuss the whole issue. However, that's not me and I'd rather be true to myself. I'll get modded down for it but slashdot karma is just a number anyways.

I thought we gave money to people who told us that they would act in our best interests and invest it wisely. I thought they had a fiduciary responsibility to do that. I thought we were told that trying to invest it ourselves was foolish, because we couldn't possibly spend the time required to do it wisely, and these people were experts, who had gone to school and who had experience doing it. Believing this was perhaps naive, but I wouldn't call it greedy or ignorant.

At the end, most companies (financial or not) follow money, not ideals.

This is just as true about the companies that the article is staying geeks should be working for instead of the investment firms. It doesn't matter if the industry is about filtering water or investing in other companies, in the end a good deal of them are just about the money.

I've worked in R&D at several companies, from a water filter manufacturer to a coatings manufacturer, and from my experience you have to look long and hard to find any elements of philanthropy in industry. It's almost 100% focused

Heavier taxes on finance income, or some sort of legal restructuring or limitation of finance itself. If you can't get money for nothing... you can't get money for nothing. The wealth gap in the US is absurd. And don't talk about ability, unless I'm completely mistaken these people are not taking any more risks or putting in any more effort than any of the other MIT grads that continue to work as productive engineers.

Deciding which industries are best worked well for the Soviet Union. Let's do it here.

Ah... Another stupid statement from an AC that doesn't know anything about how stuff worked in SU and what brought it down.
BTW: Your financial industry is already back at "too big to fail" point... So I suggest you watch your backs there, since the scumbags that were there 3-5 years ago are still there or back there...

Honestly, I'm just surprised I never heard of someone suggesting this before.

Although she's run away from the position since then, this is not unlike what Sarah Palin did [cato-at-liberty.org] in Alaska. Raise substantial taxes on oil companies and redistribute that money to Alaskans in the form of cash payments.

A cynic might see this as vote-buying, but it fits into your model as well.

I know this is Slashdot and all, but how did this get modded 5 - Insightful? Pointing out that the wealth gap in the US is absurd and suggesting that we should work to shrink it or just restrain its growth is not the same as advocating communist-style wealth redistribution (which I assume is the indended comparison).

One can easily imagine a scenario in which extreme lack of oversight/regulation results in a wealth gap that grows until the disparity between rich & poor yields undesirable living conditions and possibly even social collapse (perhaps where the US is headed), while too much oversight/regulation and "wealth redistribution" (shrinking the class gap too much, down to near across-the-board equality) stifles competition and financial incentives for improvements in efficiency (i.e. your envisioned communist scenario). Trying to strike a balance in between that maintains most of the capitalist incentive structures without promoting an ever-widening class gap is a rational middle ground. The US is probably leaning more toward the "ultra-captialist" end of the spectrum than that ideal middle ground at the moment, as demonstrated by statistics showing that the class gap growing at an alarming rate, and is substantially wider than historical levels. A more progressive income tax rate is one possible way to counter-balance that growth without unduly harming overall productivity.

Here's a thought. Why not add a stick to that carrot? When Wall Street screws the rest of us, find the people responsible, throw them in prison, and seize their assets to pay back the taxpayers. If current law doesn't allow this, then the law should be changed.
This will have 2 outcomes. Fewer people will go after the really lucrative positions (those that involve stealing from the rest of us) if there is an actual real risk of punishment. Second, possibly we might see a Wall Street evolve that actually do

Finance, just like any other good, needs competition to provide people with useful products.

Government on the other hand, destroyed competition in that sector (just like in many others), created various moral hazards, gave out various bail outs and stimulus and interest free money, created laws to guard large companies in that sector from failing, while creating other laws to prevent any sort of competition to take place.

Did you know that FINRA prevents financial advisers from publicizing their histor

As a nerd that has a passion for finance, one thing worth considering is that the work of finance itself is tremendously fulfilling (outside of the demonizing that happens from some ill-informed quarters). The problems that you are presented with are fascinating, you are surrounded with motivated people of incredible ability, and have unbelievable responsibility at a young age - where else would I get to advise the CEO of a company on his strategy at age 25? If you have never helped a desperate company raise capital to avoid going bust by working consecutive 100 hour weeks, I suppose I can't really explain the feeling. Most of all, the work is just interesting. Or maybe I'm the devil.

No, that is productive work in my (ill-informed) eyes. The implied Devilishness is bright young people being snatched up to manipulate Finance and The Market (through magic or whatever, realize that finance is as foreign to me as ancient Greek) to get ridiculous profit for "normal" work. Then the question becomes, does this occur?

Yes, but there's fascinating work elsewhere too. And when you're done, you've built a system that does something, as opposed to shuffling money around. I realize that everything comes back to money if you're going to get paid, but most other places have a layer of "actual product" in between their work and the money it generates, and that product has some intrinsic value in itself. My sincere feeling is that working in Finance, you miss out on creating a tangible product that's useful to people outside your 20-person company.

I'm sure bank robbers (not you, the types with guns) get the same thrill.

The demonizing isn't coming from ill-informed quarters. It's coming from the people who know what you do, know where you get your money from. The cash you get from HFT isn't just magically appearing from no where. It's being stolen from legitimate investors. You're all a bunch of thieves, skimming money off the top of every transaction, and using every loophole you find so that you don't even pay taxes on it. You've drained the country of its lifeblood, and in a few decades will leave it a rotting husk while you move on to another nation to loot. If telling yourself that I'm just "ill-informed" is what lets you sleep at night, then go ahead. Keep lying to yourself. But when your middle-class friends and family (do you even have any?) are suffering, know that it's because you helped your company loot their savings and run their employers out of business.

What percentage of the companies financed by Wall Street are actually producing something socially productive, and what percentage are just manipulating the system and grabbing a percentage for themselves? I honestly don't know, but sometimes the percentage of manipulators seems to be awfully high.

And the more you get into financial instruments and stuff, the less I can follow it. I do know about mortgage default swaps. Sometimes it seems that the more socially harmful it is, the more profitable it is.

Put all the little investment projects together and you get a system that may or may not be doing good for society in the long run.

And of course, the industry protects itself from government oversight and regulation, and even criticism, by huge campaign contributions to politicians. Hell, many of them are ex-politicians.

After reading/watching these, I found myself wondering why I spent all those years accomplishing nothing in IT, when I could have been robbing banks from the inside with no worries about being prosecuted.

Summary, since no one RTFA's:Guy takes out "liar" loan from bank, after much encouragement from Countrywide (now BoA)Guy defaults on loan, like so many others, losing his home. Bankers make millions.Guy runs a marathon for charity across the Sahara DesertFederal agent sees marathon coverage, thinks "How can some working stiff afford to do that? He should be keeping his head down like the rest of the slaves!"Feds send hot undercover agent to flirt with the guy, extract a confessionGuy sent to jail, ordered to pay a quarter million dollars restitution to Bank of America

In short, while you're robbing the banks from within, not only do you have no worries about being prosecuted -- the people you're robbing can be prosecuted and forced to pay you even more!

One loan application that he acknowledges filling out had true income information from a recent year. For another, in which the income was clearly exaggerated, he claims he did not fill out the application and handwriting evidence may support him.

Moreover the jury found him not guilty of providing false information to the bank, but guilty of mortgage fraud. Huh?

The guy doesn't come off as clean, but it's not clear he should be in jail. It's an astonishing story and worth a read.

I just finished working for a Hedge Fund management company that 'merged' with a larger company in Denver. They were all Windows with 10 engineers (sys admin and developers) and we were LAMP and I was doing everything. At first, theirs was a typical response to that stack reacting like a deer in headlights and not wanting to touch it but then they decided that it was important to integrate the systems and get rid of the redundant IT (IE me). But since I ran everything and got tremendous results (employee of the month and such) their only option was to try and make me look bad so they tried to say it was my attitude and my emotional response to which I let them know I was bipolar and on medication and seeing a counselor regularly for several years and high stress situation (like mergers) made the condition worse and I was trying to correct for that but they needed to be accepting of a condition that is seen as a disability.

Long story short, both HR and upper management then colluded, ignored my requests and I documented everything and they were investigated by federal agencies. A year later, we settled through federal mediators for a years salary.

In the end, I found out that they were just a good old boys network and one person would protect the other to protect the other to protect the other. Lies upon lies upon lies to cover their asses. In talking to others, this is typical in finance. If this is something that you want and like in your employers, I say go for it. Otherwise stay far away.

(here in the UK, at least)...is that actually, the ones who get sucked in by the finance sector easily are the ones who talk a good talk (and seem to do plenty of ass licking) but aren't any good at the technical skills.

I'm not just saying this because of sour grapes or anything like that - it does seem to be a trend that the jerks who everyone dislikes (or the jerks that are awful at working in a team) get picked up by financial firms. So to be honest, 'nothing of value was lost' springs to mind

We go through early life focusing on personal achievement, and one has to in order to succeed in the highly competitive application process to make it to MIT. You go through a intense regimine of MIT, where despite a number of classes where Teamwork is necessary you are still judged on your individual accomplishment aka Grades.

Is it so wrong then when an MIT graduate looks at the job opportunities arrayed in front of them, that they see 3 possibilities:

1) Start a new company/work at a startup, try to create something that will change the world. Payoff potentially astronomical, chance of success relatively slim. Ability for individual success to translate to financial success, medium.

2) Work for a big corporation, more than likely creating something which addresses the corporations needs, which may or may not help society. Payoff potential medium, chance of success high, ability for individual success to translate into financial success, low.

3) Enter the world of finance. Payoff potential high, chance of success mediuam, ability for individual success to translate into financial success, Very High.

Finance remains one of the few industries, where a contributer is able to directly monitor their value added and thus demand/receive incentives to match said value. What upside is there for me to go work for a GE, where even if some radical new design i create revolutionizes their jet engines and makes the company billions over the next 15 years, I'll get a decent paycheck, maybe some stock or options but in reality there is no real upside for my success.

Until society/companies puts emphasis on engineers and inventors in terms dollars, people will be less inclined to create/invent.

You're not seeing the big picture here. We have Universities, Public Education, the whole nine yards, BECAUSE our Society has been built upon the importance of education over the preceding hundreds of years. You're not being paid to go to University, but the fact that there is a university there for you to attend, you owe to the society you live in. The fact that you are on the Internet, you owe to human society. SOMEONE had to invent it so you could use it. The amount of things you take for granted is shoc

The idea is fine. Roll together a bunch of mortgages (debt obligations) backed by property (collateralized) and you have a security. It's actually a useful idea because it gives banks another market to sell these to. It gives people with money to invest another place to invest it.

The problem was basically fraud. Wrapping steaming piles of dog crap together and claiming they weren't risky was an outright lie. CDOs plus outrageous lies were the problem. I still remember well just being amazed at things like low-doc and no-doc loans. I remember applying for a loan from my bank and they offered me more than double what I could actually afford.

We want to blame the finance guys, but the problem was banks giving loans to people they knew couldn't repay them because they could just sell the loan to someone else and not care. The problem was the liars who falsely represented those CDOs that were composed of crap as being safer than they were. The problem was investors not doing due diligence, seeing anybody with a pulse getting $100k+ in money to buy a house, even if they didn't have a job and NOT being damn sure those types of loans weren't in the CDOs they were buying. The problem was investors not seeing a massive streak of systemic risk running through adjustable mortgage rate backed securities. When rates go up, defaults go up on ALL of them. Systemic risk, which is exactly what bundling things together is supposed to mitigate.

People, the very same issue would exist if this happened with savings accounts. There's nothing wrong with savings accounts, but if a chain of people did stupid things with the money in them causing it all to be lost, would we be up in arms that savings accounts are bad, or would we be up in arms about the criminals who misused them? I hope the latter.

When rates go up, defaults go up on ALL of them. Systemic risk, which is exactly what bundling things together is supposed to mitigate.

...it's worse than that, because when rates go up and defaults go up, the value of property - which is hugely influenced by the price and availability of mortgages - goes down. Oh, and if banks rely on the profit from selling CDOs to enable then to offer cheap mortgages, any glitch with CDOs will put up the price of mortgages which...

...and it gets worse still! Suddenly, instead of offering long-term mortgages at competitive rates, banks were offering "bargain" discount or fixed-rate deals for 2 years, after which customers were forced to either re-mortgage or have their payments revert to an exorbitant "standard" rate. Nothing to do with banks making more money trading CDOs and suchlike every time someone re-mortgaged than they would by retaining long-term customers, I'm sure. Of course, this makes the property market even more volatile because anybody who, for whatever reason, is unable to re-mortgage is up shit creek when their bargain deal runs out.

Ergo, CDO's are a pretty dumb idea prone to catastrophic, self-accelerating failure with all sorts of unintended consequences. If you wanted security, you'd bundle mortgages with gold, oil, cheap vodka futures or something else that tend to go up when the credit market tanks. Even if they don't require outright fraud they make it easier, and tempting.

display that with MONEY. Anything else is shit. If you value what a person does you pay them. End of story.

If society doesn't value engineering, there is no reason to be martyred for a bunch of Fox News-watching oafs. There is, if you can get away with it, every reason to break one off in the collective public arse and get rich doing it.

Someone has to say it:Society breeds sociopaths because it genuinely fucking deserves them.

Unlike some of the posters, I do not have a clear opinion or understanding of exactly finance does for us, especially the part of finance that is done by MIT graduates. I have heard two opposing claims which I put into two opposing categories.

Is it:

* Finance is a fraudulent game designed to fleece others out of their money using complex financial instruments that cannot be understood by those who have the responsibility to prevent fraudulent activities in our financial institutions.

or:

* Finance more efficiently distributes money into investments in our economy so that our resources are more efficiently organized to maximize productivity. Complex financial instruments are used to distribute risk and allow creators of goods and services to protect themselves against risks which would otherwise potentially destroy their ability to provide those goods and services.

The problem is that I believe each of the above statements are true at least to some extent. What I don't know is the percentage to assign to each category or to some new category in between these two polar opposites of categories of results. In particular, I do not how mathematical financial engineering is distributed among these categories in terms of effective output.

If the best and brightest are being hired merely to create profit for the few and have no positive impact on the wealth of the many, then I believe that is wrong and I cannot see justification for this as a moral good. I cannot see any essential difference between this and successful recruitment efforts by the Mafia for new well paid enforcers. An enforcers job might be fun, have good comradeship, work with the "best", and be well paid, but it still does not make it a morally acceptable choice of occupation.

So for me, the key question is whether the mathematically complex part of finance is actually performing in the way capitalism is intended to perform or are the complex algorithms used to better enable parasites to enrich themselves at the expense of the larger body politic. Factual information on this is actually somewhat hard to come by. Certainly I have seen a lot of claims about CDOs, risky mortgages, investment pools, arbitrage and the root causes of recent failures. But when I try to dig a little further, real information based on real data is quite hard to find.

I'll give an example. One typical trick for extracting unfair money from others is to design an investment that pays better than average as long as a seemingly unlikely event does not occur. You get others to put money into the investment by lying or disguising the true risks about whether the event will occur. You then take a portion of the money that investment as your own (as a "fee") and then create a complex derivative to bet against the investment by buying "insurance that pays off if the event occurs". How much of the profit made by financial companies is made from tricks of this sort?

In particular, what percentage of the recent instability was caused by CDOs that packaged risky mortgages and how well did some of the principal players understand the true nature of the risk? Again, I can get vociferously stated opinions on this but I am finding it hard to find real fact. However, in defense of the financial industry, it seems very few were aware of the true risks of the mortgages and many of them lost considerable money (maybe not as much as they should have) after the crisis. But there were some who knew what was going on and many (even though ignorant about what was truly going on) who profited while the times were good who did not suffer proportionally when things went bad (the "private profit" and "socialized risk" that a couple of posters alluded to).

I do have one more thing to say. There is an old saying, "Democracy is the very worst form of government with the exception of all others". I have a similar opinion about capitalism. Capitalism is prone to "bubbles" that grow and burst and this seems to be inherent in its nature. When seen this w

...since when is attempting to convince people to make a specific choice considered slavery?

It is not. However, Vivek Wadhwa does have a point. As someone who went from a tech/engineering background into management consulting, I have reached a point where I wish I had remained in technology, and in building something tangible.

Yes, the salary is better and the incentives are great -- I get to travel, I get to work on a variety of problems (marketing, revenue management, even technology recommendations), and in my late 20s, I work with C-level executives. It's great exposure.

However, as I near my 30s, I have to ask -- have I done anything tangible? Have I built something that made a true difference to the world? I wish I had joined a tech company and worked on my programming capabilities, so that I can build something, even if in my spare time. I wish I had used my undergrad engineering degree in working on VLSI design or something. And with the 60-80 hour work weeks and travel Monday through Thursday, I wish I had enough time for personal interests or activities -- in a past life, I used to do a lot of rock and ice climbing; it's been 2 years since I did any. Open source contributions? Zilch. Even playing with Lego seems like a chore, because I've 3 million other things to do. And you know you've a problem when you start getting worried about play being a chore, since it takes time away from other "important stuff" -- i.e. building pointless decks and excel models.

The other problem with most of what you do in finance and management consulting is that your skills are limited in the outside world, and you are so busy with your work that you've little time to learn other things.

So, I've decided to go the entrepreneurial route. I may try and fail, but at least I would have tried. With a couple of my friends (both of whom, incidentally, are from i-banking and quite burnt out themselves), we've decided that it's about time that we started throwing ideas at the wall to see what would stick. I live in Boston, so we're working with college students in the Cambridge area who are interested in working with us for a little equity and cash, and trying to develop new and interesting products.

The first of which is slated to go live end of this month -- Deal Umpire [deal-umpire.com] -- and a couple of others being worked on. It has been an immensely fulfilling experience.

Building a 50 page deck that no one will ever look at beyond the first two pages, a complex excel model that you spent weekends developing that gets forgotten and locked away, or making recommendations that get ignored because the client will do as the client pleases anyway -- none of this comes close to the thrill of building something on your own, something tangible and worthwhile (now, arguably, there are definitely clients and engagements that are truly interesting, and the client genuinely cares about what you are building -- but those are rarer than you'd think),

We have investors eager to fund, but we do not want to take up their offers, because we are afraid that it will be back to building decks and models to do someone else's bidding. So, we're at it on our own.

If you are an engineer, you probably went into the profession because you like to build things, because you like to open things apart and learn, and because you like the fact that creativity and analysis can often team up in building some pretty awesome stuff. You will not find that in either of those two professions. Yes, you will have money and the perks, but if you don't kindle that spark of creating something, you will soon extinguish it for greed. And that is very, very unfortunate.

Thankfully, I've a very understanding wife who is a geek herself, and she has been very instrumental in helping me keep my act together. And just the thought of working on something fun and interesting goes a long way to rekindling creativity I'd thought long gone.

If you want more engineers, make the field more attractive. If the industry sucks people are going to avoid it no matter how badly we need it.

And I took exception with the statement "This is the talent that our country has invested so much resource in producing." That makes it sound like we gave them loads of valuable training for free and then they wandered off and left us holding the bag. What a crock. Most of them graduated with smothering debt in order to get that education...so it seems that the greater part of the investment was their own. That debt just further drives them to an industry that will pay big.

Lately I have really been lamenting the fact that I chose to program computers for a living. I see how much money people in the finance industry make. They are in a higher income bracket, and yet they don't seem to be in a higher talent or workload bracket. Why shouldn't I be envious, and why shouldn't I leave my boss high and dry for a different job that pays twice as much?

In some cases, perhaps. The 12 years of elementary school education, however, was not, and neither were the numerous public grants to their institutions. Nor was the decision of their professors to teach instead of going into other sectors (like, say finance) a matter of no worth. Many professors sacrifice their prospects out of a sense of duty to society at large.

You are right that the student debt problem is crazy, but it is hardly unreasonable to hope for, persuade, and praise the development of a sense of civic responsibility in our graduates.

Besides, I seem to recall it was the financial sector lobbyists that managed to screw as much cash out of privatized student loan programs as they could, until congress finally managed to get the program back into more efficient government-run hands...

You're not talking about "participating" in society. You're talking about, at best, guilt tripping students into a path that's less profitable for them, and at worst, coercing them into that path, because YOU think it'd be good for society. It's a good thing that you don't have any authority about it.

As an engineer that went into the financial industry let me tell you why:

1) It pays more (duh)2) It is more exciting from an algo point of view3) It is more exciting from a thought point of view

I love building structured products and building automated trading routines. Want to know what sucks? Patents! I can't innovate anymore because I have to worry about some corporation or patent troll stopping me from building my toy. And if I wanted to patent it would literally cost ten's of thousands! The idea that p

Why shouldn't I be envious, and why shouldn't I leave my boss high and dry for a different job that pays twice as much?

Hopefully because you need more than just a higher pay bracket to be happy with your job and therefore happy with your life. My most recent job was working in a call center offering technical support. They could have been paying me 100,000 k a year, and I guarantee I still wouldn't be happy when I got to work every morning. I'd just have a bigger house and nicer car to leave work in and go home to. I'm not saying being motivated by money is wrong, especially when you have a crushing debt load to pay off aft

"If you want more engineers, make the field more attractive. If the industry sucks people are going to avoid it no matter how badly we need it.

And I took exception with the statement "This is the talent that our country has invested so much resource in producing." That makes it sound like we gave them loads of valuable training for free and then they wandered off and left us holding the bag."

Well said. All that needs to be done is raise pay in the industries you think are important. This notion of forcing p

Those of us that dislike Goldman feel that way because Goldman has used it's position to ruthlessly manipulate the system both politically and technically.

There is a revolving door between Goldman and Democrat administrations, giving them an unfair political edge. Lehman brothers was bailed out so they could pay off their counter parties, mostly Goldman. Did Goldmans risk management system ever consider 'Counter party risk'? If it did it was never looked at. Counter party risk is not a hard number to calculate. I can do it with 1 query on 'Position' for future, 1 query on AR for past. (I wrote risk management for Electric Power trading systems at a previous job).

Goldman has co-located with the NYSE giving them an unfair technical edge.

Any company too big to fail is too big to exist. Goldman is prime example. It should have been broken into at least 3 peaces.

It's not slavery. Working for the betterment of mankind instead of its hasty demise is liberating. On the contrary, working for greedy pigs is slavery, no matter how much money they give you.
I used to work for the military-industrial complex. It paid very well, but it's a soul-sucking job. After one of my kids developed cancer and 9-11 happened, I decided that I couldn't go on in that line of work, and left the industry. I now work at a university for 1/3 the income, and feel much better about what I do fo

"I now work at a university for 1/3 the income, and feel much better about what I do for a living."

Of course that's your choice and exactly for that reason it's not and can't be considered slavery.

On the other hand, others that might feel exactly like you, opted to be on the banking business and they feel now as good as you out of their early retirement with the money they earned while at their soul-sucking jobs.

Yeah, I know left-leaning people who work for the military, usually because they wound up there at some point years ago and made a commitment. They thought they could do some good, then George W. Bush got elected.

But. Human beings are evolved to work together in groups to accomplish goals together. They get great satisfaction from doing that. The military does that in a big way.

However, it makes a difference what the goal is. It's one thing to protect your country during WWII. It's something else again to d

I take strong exception to everyone in the financial sector being labeled a thief. I've worked for some excellent financial firms that have helped people to manage their finances and invest for the future. That there are amoral scumbags in the world is no shock, but just as most of the lawyers I've known are good people who try to do good in the world through their work (while their profession is tainted by the loudest minority), bankers and other fiduciaries provide an essential service which all too often does not receive the respect it deserves.

Who is Goldman competing against here? Are they trying to snatch these people up with huge bonuses because there are other financial firms (any major ones left?), or is it just Goldman's desire to grow their profits, or both?

The implication I got from the summary is that by working for these firms which have been working to "Game" the system in the past, those engineers are working against our collective interests, whereas normal engineers work for our collective interests(this is the common belief, one I won't comment on).

They would be competing against firms like IBM, Oracle, SAS, SAP, CSC, etc... Who "merely" charge a premium of 25-30% on a candidate's rate and bill the client.

Or perhaps because many of these businesses can only afford to pay these people so much because they corrupted the government and got bailouts and handouts? I also don't begrudge sports salaries because I don't make that much, I begrudge them because they can only exist due to the hundreds of millions of dollars corrupted government officials dole out to them to build their stadiums (in some cases, after referendums specifically on the funding were voted down). Take away the corruption, takes away the billions of dollars in unnecessary handouts to these companies, and suddenly the playing field becomes much closer to level for more productive professions.

Every time I see someone make a post with this sentiment, I want to vomit in their face. Are you not aware of what happened? Do you never read anything? Check out this graph [wsj.com]. Note that over one trillion dollars on the fed's balance sheet went to buy mortgage backed securities. That is money that went to banks. Note that this is more than TARP. Note that this is just one of the ways the fed has been subsidizing banks. It's really bad, look at the numbers. Now, sorry for the vomit in your face.

Right, pull out the jealousy card as soon as someone sees a problem with this recruitment. The only possible reason one could have for disagreeing is that they're jealous they don't have the job themselves.

I don't demonize all (or even most) businesses who seek out the best. What I do object to is the organized cesspool of crime that is the finance industry. They are directly responsible for the current economic conditions (a recession that could lead to a depression). They produce nothing of value, an

Your feelings are hurt? Didn't you know: your salary is not proportional to your social utility. No one thinks that the "invest in companies" part of banking is wrong. The "create useless products which cause the world to crash" is what people object to. Oh, and the "hold the public to ransom instead of going bankrupt, like honest business do" is pretty bad.

Also the "think your salary is deserved" attitude -- especially after the crisis -- is particularly grating. You do not work so hard, nor are so clever that the salaries in the banking industry can be deserved. But this is not particularly relevant.

What is, is that perfectly good engineers go and pursue essentially fruitless careers instead of advancing the lot of mankind because of the salaries offered. This means that people selected for their greed, as opposed to a love for forward looking investments, are concentrated in an industry were they can cause maximum damage. This means that there is a dearth of very good engineers in the technical fields, which destroys the potential investments you would like to make!

The old idea that people working in some specific profession produce nothing of value to society.

I take it you've just come back from Mars: currently, "producing nothing of value to society" would be such a massive improvement for the finance sector that even I wouldn't begrudge them a bonus...

The inventor of the mobile phone fart app has more to be proud of than the inventor of the CDO.

Of course, some people in finance might still be doing useful work - e.g. taking deposits from people with surplus cash and lending it, at a slightly higher rate, to people with short-term cashflow problems. Maybe such people should find a new name for what they do, because that sort of thing ceased to be the main business of the banks when they found that they could play insane money games with our cash, keep the winnings and send us the bill if they lost.

The good folks in Goldman and lots of other high level "fiscally conservative" executives have made sure that all but the few who chose their parents very carefully are saddled with mountains of debt on graduation.

That way, the executives can wave a few jobs around that pay well enough to let the grads pay the debts off in ten years instead of 30. The grads compete their asses off for those few jobs.

The rest can fend for themselves in private enterprise where, unsurprisingly,

Are you aware that you've probably just violated your non-disclosure agreement? These are a strong reason why engineers don't warn other engineers about internal issues where they work: the non-discluser agreements for finance companies are quite dstrong.